Protecting Franchisors From New Regulations

In light of the revenue recognition standards, ASC 606, issued by the FASB and IASB, the International Franchise Association (IFA) formed a task force with the mission of protecting franchisors from the impacts of the new standards. These new revenue recognition rules go into effect for annual reporting periods beginning after December 15, 2017 for public companies and December 15, 2018 for private companies.

“From an early planning meeting in March 2017, I set Revenue Recognition under 606 as one of the most critical issues of my year as IFA Chair”, said Shelly Sun, chairwoman of the International Franchise Association. “We put together a task force of IFA staff and industry experts including Aaron Chaitovsky and Joe Turkewitz of Citrin Cooperman, Joe Dunn of Fisher Zucker, Lee Plave of Plave Koch, and myself, who together engaged the SEC and FASB directly to protect franchisors – addressing among other things the disproportionate impact that the Revenue Recognition standard may have on emerging franchisors facing escrow requirements in registration states. IFA added huge value to franchisors through its investment of time and resources and this should be a call to action for non-IFA member franchisors to join IFA to ensure we continue to have the resources for IFA to advocate and add member value.”

Members of Citrin Cooperman’s Franchising Practice worked as part of the task force and IFA Board of Directors to approach the FASB in an effort to shine light on the impact adopting the new revenue recognition standards will have on the franchising industry. The task force was able to reach a conclusion with the FASB that the initial franchise fee received by franchisors can have within it completed specific performance obligations, and therefore there could very well be justification to recognize a portion of the fee prior to the opening of a location under certain circumstances. The outcome is in contradiction with the whitepapers issued by numerous top accounting firms who, for the most part, have recommended that their clients defer the entire initial franchise fee in adopting ASC 606.

At the FASB’s recent town hall meeting, FASB Vice Chair Jim Kroeker discussed the argument put forth by Citrin Cooperman’s Franchise Practice and the IFA task force, as seen in the video below.

Citrin Cooperman is an independent member firm of Moore Stephens North America (MSNA), which is itself a regional member of Moore Stephens International Limited (MSIL). All firms in MSNA are independent entities, owned and managed in each location. Our membership in MSNA and our association with MSIL, through our membership in MSNA, should not be construed as constituting or implying any partnership between the aforementioned parties and Citrin Cooperman.